October is a famously volatile month. 1929’s Black Tuesday and 1987’s Black Monday both occurred in October. This year, the S&P 500 dropped more than 5% during the first two weeks of the month. Pullbacks of any magnitude have been rare during this long bull market.

One notable feature of this retreat was that it failed to spare the high-growth technology companies who had long been the market’s most resilient leaders. Although smaller companies generally fared worse than large ones, Amazon.com and Netflix, both of which had approximately doubled over the prior 12 months, both dropped about 10% (Netflix would recover on the back of its Q3 earnings announcement). Alphabet — a.k.a. Google — has now only about matched the overall market over the past year. Facebook fell way off the pace when its stock declined more than 20% in late July. The unstoppable FAANG (an acronym from the first letters of these tech giants) trade is not necessarily over, but it looks vulnerable.

The market pullback coincided with an accompanying 0.25% shift upward in the yield curve. Such a shift would not have been news before the era of quantitative easing, but here in the early stages of the Fed’s exit from QE, interest rates on long-dated bonds have remained stubbornly depressed even as short-term rates have risen. We wrote about the resulting flat yield curve last month. Now we can say that while the curve remains quite flat by historical standards, it is no longer flattening.

The first catalyst occurred on September 26th when the Federal Reserve raised its target overnight lending rate another 0.25% to a range of 2%-2.25%. Fed observers noticed that its official policy statement no longer refers to its own monetary policy as “accommodative,” implying that the Fed no longer considers low short-term rates to be an express stimulator of economic growth. Since the rate increase was expected and was also paired with a less hawkish statement, the market’s reaction on 9/26 was initially quite muted.

It seemed to take a few days for the market to realize that removing the word “accommodative” does not necessarily mean the Fed feels confident about keeping inflation in check. In an interview following the policy statement, Chairman Jerome Powell stated that he believes the Fed remains “a long way from neutral,” implying more hikes are coming. He also said that he isn’t sure where neutral is. These comments became a second catalyst, spooking longer-term rates higher.